Some House Republicans Deny Risk Of Default In Debt Ceiling Debate

Republican Rep. Tim Huelskamp, shown in June 2012, says the U.S. won't default unless the president chooses to let it happen.

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Originally published on January 17, 2013 5:10 pm

The federal government hit its debt limit at the end of last year. Since then, the Treasury Department has been taking what it calls "extraordinary measures" to keep the government funded and avoid defaulting on U.S. obligations.

But those measures will run out sometime between the middle of February and early March. Then it's up to Congress to raise the debt limit.

House Republicans are wrestling with the best strategy at a retreat Thursday and Friday in Virginia. And some have been denying that there is a risk of default if the debt ceiling isn't raised.

President Obama has said the debt ceiling needs to be raised as soon as possible.

"The issue here is whether or not America pays its bills," he said this week. "We are not a deadbeat nation."

The consequences of not raising the debt ceiling, he says, would be dire. And on this point, it's worth noting that the vast majority of economists and business leaders agree.

But earlier this week in the speaker's lobby — a bustling room just off the House floor — a very different narrative could be heard.

"There is not going to be a default unless the president of the United States chooses," said Republican Rep. Tim Huelskamp of Kansas. "He is threatening folks with a very empty threat."

And here's how Rep. Pat Tiberi, an Ohio Republican, put it: "Nobody is talking default except for the president. He doesn't need to default."

Need a translation? When Huelskamp and Tiberi talk about default, what they mean is missing debt payments — failing to pay the nation's creditors. What they're arguing is that the president and Treasury will have to set priorities.

Tiberi says the top priority would have to be paying interest on the national debt.

"Defaulting is something that we can't do," he says. "So, it's got to be a priority."

Under this theory, Social Security recipients, veterans, government employees, contractors and all the rest would get lower priority; though Tiberi says seniors and veterans should get paid first with whatever is left after interest payments.

But many government payments would be delayed or canceled. This is sometimes called "technical default." And Huelskamp doesn't seem particularly worried about that.

"I think it's an incredible lever that should be used," he says. "I mean, we have a spending problem. The debt ceiling is a great indicator we've got a spending problem. But default is not going to happen. It's not about default. It's about pressuring the White House to come to the table with some actual spending reductions."

The Treasury Department argues this isn't a viable alternative and would simply be default by another name. And it isn't just the Obama administration saying this.

"It's like having a credit score," says Tony Fratto of Hamilton Place Strategies, who was an official in the Treasury Department under President George W. Bush. "The credit score firms out there, they see across all of your bills and they see that, you know, you failed to pay some bills, even if you paid other bills. And that damages your credit score. And it's the same way for a government."

This would be uncharted territory, so no one knows for sure what might happen. But many believe that, just like a borrower who misses a few cable bills ends up paying a higher interest rate on his credit card, the government's cost of borrowing could rise.

As for the whole idea of prioritizing debt payments — even assuming it would be possible — Randy Kroszner, a University of Chicago economist and former Federal Reserve governor, says it isn't a great idea.

"A slowing of payments to the non-debt holders is unlikely to cause economic Armageddon," he says. "But that said, it's not a good position to be in."

Just imagine the message: "Wait to get paid because we have to pay the debt service that we owe the Chinese and the Japanese," he says. "I think that is just an absolutely unsustainable political place to be. And so I don't see this at all as a likely outcome."

Members of the House Republican conference are weighing whether the debt ceiling is where they want to take their stand on spending — prioritization or not.

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The federal government hit its debt limit at the end of last year. Since then, the Treasury Department has been taking what it calls extraordinary measures to fund the government and avoid defaulting on its obligations. But those measures will run out some time between the middle of February and early March.

CORNISH: It's up to Congress to raise the debt limit and negotiations with the White House are sure to be contentious. Republicans are now at a retreat in Virginia, talking over their debt limit strategy. In a moment, we'll hear from NPR's David Welna, who's at that retreat.

But first, NPR congressional correspondent Tamara Keith explores one idea that's been making the rounds.

TAMARA KEITH, BYLINE: President Obama has made it clear: The debt ceiling needs to be raised as soon as possible.

PRESIDENT BARACK OBAMA: The issue here is whether or not America pays its bills. We are not a deadbeat nation.

KEITH: The consequences of not raising the debt ceiling, he says, would be dire. And on this point, it's worth noting that the vast majority of economists and business leaders agree. But earlier this week in the speaker's lobby, a bustling room just off the House floor, a very different narrative could be heard.

Tim Huelskamp is a Republican from Kansas.

REPRESENTATIVE TIM HUELSKAMP: There is not going to be a default unless the president of the United States chooses. He's threatening folks with a very empty threat.

KEITH: And Pat Tiberi, an Ohio Republican.

REPRESENTATIVE PAT TIBERI: Nobody is talking default except for the president. He doesn't need to default.

KEITH: Let me translate. When Huelskamp and Tiberi talk about default, what they mean is missing debt payments, failing to pay the nation's creditors. What they're arguing is that the president and treasury will have to set priorities. Tiberi says the top priority would have to be paying interest on the national debt.

TIBERI: Defaulting is something that we can't do. So it's got to be a priority.

KEITH: Under this theory, Social Security recipients, veterans, employees, contractors and all the rest would get lower priority, though with whatever is left after interest payments, Tiberi says seniors and veterans should get paid first. But many government payments would be delayed or canceled. This is sometimes called technical default.

Congressman Huelskamp doesn't seem particularly worried about that.

HUELSKAMP: I think it's an incredible lever that should be used. I mean, we have a spending problem. The debt ceiling is a great indicator we've got a spending problem and - but default is not going to happen. It's not about default. It's about pressuring the White House to come to the table with some actual spending reductions.

KEITH: The Treasury Department argues this isn't a viable alternative and would simply be default by another name. And it isn't just the Obama administration saying this.

TONY FRATTO: It's like having a credit score.

KEITH: Tony Fratto is with Hamilton Place Strategies and was an official in the Treasury Department under President George W. Bush.

FRATTO: The credit score firms out there, they see across all of your bills and they see that you failed to pay some bills even if you paid other bills, and that damages your credit score. And it's the same way for a government.

KEITH: This would be uncharted territory, so no one knows for sure what might happen. But many believe that just like a borrower who misses a few cable bills ends up paying a higher interest rate on his credit card, the government's cost of borrowing could rise.

As for the whole idea of prioritizing debt payments, even assuming it would be possible, Randy Kroszner, a University of Chicago economist and former Federal Reserve governor, says it isn't a great idea.

RANDY KROSZNER: A slowing of payments to the non-debt holders is unlikely to cause economic Armageddon. But that said, it's not a good position to be in.

FRATTO: Wait to get paid because we have to pay the debt service that we owe the Chinese and the Japanese. I think that's just an absolutely unsustainable political place to be. And so I don't see this at all as a likely outcome.

KEITH: Members of the House Republican Conference are weighing whether the debt ceiling is where they want to take their stand on spending - prioritization or not.